The spectrum crunch has come to cable. Comcast Corp., the country's largest provider of cable television services recently announced that it is testing two new approaches to managing data usage by its customers.
According to a post on the company's website, "The first new approach will offer multi-tier usage allowances that incrementally increase usage allotments for each tier of high-speed data service from the current threshold. Thus, we'd start with a 300 GB usage allotment for our Internet Essentials, Economy, and Performance Tiers, and then we would have increasing data allotments for each successive tier of high speed data service (e.g., Blast and Extreme). The very few customers who use more data at each tier can buy additional gigabytes in increments/blocks (e.g., $10 for 50 GB)."
Comcast described its second new approach as one that will increase data usage thresholds for all service tiers to 300 GB per month while offering additional gigabytes in increments or blocks. For example, an additional 50 gigabytes may cost a consumer $10.
In both approaches, Comcast will increase the initial data usage for their customers from the current 250 GB per month to at least 300 GB per month.
Advocacy groups such as Free Press have expressed their displeasure with data caps. In a statement released on Tuesday, Free Press policy director Matt Wood said, "The data caps being pushed by the biggest cable companies are bad for consumers — and the FCC should be investigating these caps, not endorsing them. All the evidence shows that caps on wired broadband platforms like cable make no sense. They don't affect network congestion, even in the rare instances where congestion actually exists on these systems. Cable companies use them to penalize their subscribers and discourage them from using innovative services that compete with cable TV.
"Comcast's recent actions show both the harms of these caps and the lack of any legitimate reason for them. Comcast started out by exempting its own content from its caps, while applying them to competitors like Netflix and other online video providers. Then Comcast changed course and suspended caps temporarily in all but a few markets — but promised to start overcharging any users there who exceeded these arbitrary limits."
Of course, broadband providers should be free to try different pricing strategies. But the FCC's apparent endorsement of these plans only makes sense in a world with real broadband competition. Unfortunately, the wireline broadband market is at best a duopoly and is trending toward a cable monopoly. That makes broadband providers' pricing schemes almost immune to market discipline and consumer response.
"The FCC has turned a blind eye to this competition problem. If it wants to see experimentation in pricing that actually benefits consumers, we need a competition policy that creates more experimenters."
Is there anything wrong with Comcast's policy? Probably not. Telecommunications and cable companies have practiced tier pricing for decades. Arguably Comcast is merely applying the pricing practices for its cable services to its data services.
Telecommunications companies charge higher prices for certain packages of landline and wireless services. In addition, with the exception of basic tier services, the prices for premium services provided by cable companies have been unregulated for the better part of two decades.
While Free Press is calling on the FCC to implement a competition policy that would bring more players into the cable television market, crafting such a policy may be out of the FCC's hands. Cable companies typically enter a local market by first meeting franchise requirements of a city, county, or state. While the Communications Act spells out the review process for applying for a franchise agreement, local requirements for service areas, infrastructure, and public channels are the barriers to entry that keep new entrants out of new markets.
In addition, cable companies face increasing costs to purchase programming from content providers such as Disney's ESPN, and Time Warner's TNT.
Innovative technology may be the next best way for a new provider to enter a market dominated by Comcast. There is no guarantee that entry by new cable providers will necessarily drive down prices, at least in the immediate and long run. New entrants will eventually seek to recover the costs of entry fees and programming by charging a rate just below that of the incumbent.